Steve Cohen has been trying to buy Picasso's Le Reve for six years. Two weeks ago it emerged his dream had finally come true.

But his record $150m purchase looks more like a nightmare, as the hedge fund billionaire faces charges of insider trading and racketeering, enormous fines and the inevitable suggestion that one of Picasso's most famous works is, in fact, cursed.

Cohen's Connecticut-based SAC Capital recently seemed to have settled its long-running insider trading charges over improper trading with an agreement to pay $615.7m in fines to regulator the SEC. But last week the agreement fell apart when a judge questioned the largest part, irritated by a clause that let SAC neither admit nor deny wrongdoing.

A day later Michael Steinberg, one of Cohen's most trusted lieutenants and an SAC portfolio manager, was led out of his Park Avenue apartment by the FBI and charged with conspiracy and securities fraud.

Perhaps even worse for Cohen personally, yesterday a New York appeals court resurrected a lawsuit brought by his ex-wife, Patricia Cohen, seeking damages of $8.25m and claiming her ex-husband's hedge fund is "racketeering scheme" that engages in insider trading. She has filed claims under the Racketeer Influenced and Corrupt Organizations Act – an act created to prosecute mafia bosses – and claims he hid $5.5m from her during their 1990 divorce.

What is not in dispute is that Cohen has built an $8.8bn fortune through canny bets on the markets. He has also amassed one of the world's finest art collections, owning classic paintings by Edvard Munch, Willem de Kooning and Jackson Pollock as well as contemporary pieces including Damien Hirst's pickled shark.

It was a long journey to add Le Reve to his collection. Picasso is said to have painted the erotic portrait of his then mistress Marie-Thérèse Walter in a single afternoon and it has gone on to be one of his most famous works. Ownership of the prestigious work of art has proved problematic for some, however.

Cohen first tried to buy the painting from casino magnate Steve Wynn in 2006, for what would then have been a record $139m. But in a notorious incident shortly before the sale, Wynn accidentally knocked a six-inch hole in the painting in an incident that became known as "the $40m elbow" after the painting's value was slashed following a $90,000 repair.

The incident ended the sale and landed Wynn in a legal battle with his insurer Lloyd's of London. Luck changed for Wynn, however, and he eventually topped his original sale price despite the repair. The painting's previous owner was less fortunate.

Wynn bought Le Reve off Austrian-born investment fund manager Wolfgang Flöttl in 2001 as his business empire began to unravel. Flöttl too had made a fortune in hedge funds. His art collection included Cezanne and Van Gogh's Portrait of Dr Gachet. The high-flying Austrian was married to Anne Eisenhower, granddaughter of the US president.

In 2008 Flöttl was ordered to spend 10 months in prison, one of nine people convicted of playing a part in a scheme that cost Bawag, one of Austria's biggest banks, close to $2bn in losses.

The only truly happy owner of Le Reve appears to have been Victor Ganz, the famous art collector who originally paid $7,000 for the piece in 1941. Ganz and his wife Sally amassed a collection including works by Picasso, Jasper Johns, Robert Rauschenberg and Frank Stella through a lifetime of collecting. After their deaths in 2007 their collection was sold to pay estate taxes. Their collection, for which they had paid an estimated $2m, sold for over $206m at auction, representing a return of over 10,000%.